3.1 Money Flashcards
what is the simplest system of exchange
- Barter
Define barter
- Involves the direct exchange of goods and services for other goods and services without the use of money.
what are the four problems with barter
- A double coincidence is required
- Time consuming
- Terms of exchange must be agreed
- It is difficult to save and borrow
what is ment by the term ‘A double coincidence’
- for trade to occur, each party must have what the other wants and want what the other has.
define terms of exchange must be agreed
- Two people might find that two goods or services such as bread and haircuts have different values in there opinion.
- therefore it will aslo be difficult to give change if something is more valuable than another.
Why it is difficult to save and borrow when bartering
- it is difficult to save because produce can be lost also it is difficult to borrow as prices may change so it is hard to know how much to pay the lender back.
Name the 4 functions of money
- medium of exchange
- measure of value
- store of value
- standard of deferred payment
Define the term ‘medium of exchange’
- money provides an automatic coincidence of wants because everyone wants and accepts it.
Define the term ‘measure of value’
- Money introduces a standard scale of value against hutch goods can be priced.
- therefore less time is wasted agreeing the terms of trade
What is meant by the term ‘store of value’
- money retains its face value over time so people can exchange goods for money and then keep the money to spend at a future date
What is meant by the term ‘standard of deferred payment’
- this function comes about from money being both a measure of value and a store of value.
Name the 7 characteristics of money
- Acceptability
- Durability
- Divisibility
- Portability
- Uniformity
- Scarcity
- Difficult to forge
Explain why a characteristic of money is Acceptability
- Money must be accepted by everyone.
- As they must believe in its value.
Explain why money must be Durable (Durability)
- Money must not rot or perish
- Otherwise it would not maintain its value
Explain why money must be Divisible (Divisibility)
- Money must be split into units of differing values
- otherwise it cannot be a measure of value
Explain why money must be portable (portability)
- Money must be easy to carry around
Explain why money must Uniformity
- Money of equal value must be identical in all, respects.
Explain why money must be scarce (Scarcity)
- Money supply supply must be limited
- To maintain the moneys value
Explain why money must be Difficult to forge
- Money must be difficult to counterfeit (forge)
- so people keep faith in it.
What is the money supply
- It is all forms of money that is acceptable as a medium of exchange
How can money supply be categorised
- It can be categorised by how easily it can be converted into cash
- This is known as ‘Liquidity’
What does ‘near money’ equal
- How quickly the asset be converted to cash
